3 Small-Cap Pot Stocks to Watch in the Cannabis 2.0 Market

It’s old news now that 2019 was a huge disappointment for pot stock investors. The first full year of cannabis legalization was expected to deliver a massive “green rush” as marijuana investors waited for huge returns on their investments while Canadians flocked to dispensaries and online marketplaces in their droves. Sadly, things didn’t work out quite as expected thanks to a combination of issues, namely a lack of retail visibility, regulatory uncertainty, and the ever-present dominance of the black market.

However, that’s not to say legal cannabis is a write-off in terms of investment, in fact, quite the opposite. So far this year, we have seen several pot stocks start to take off as the industry really begins to find its feet, and the launch of cannabis 2.0 looks set to blow the market wide open thanks to the imminent arrival of a whole host of much sought-after products, such as vapes, edibles, infused beverages, and pretty much anything else you can think of putting weed in.

As an investor, you’re probably wondering how to capitalize on this renewed sense of optimism in pot stocks. Well, you should consider small-cap firms given that they generally tend to cost much less than their larger counterparts but offer an equal, if not greater, potential to take off. When you take into account the fact that the cannabis market is only a little over a year old, coupled with the market’s potential over the coming months, small-cap pot plays look like hot property at the moment.

Auxly Cannabis Group Inc (TSXV:XLY) (OTCQX:CBWTF)

While Auxly’s market performance in 2019 may look a little rocky, fluctuating from a peak of $1.05 in August to a low of $0.53 in December, the company actually performed much better than many of its compatriots. In fact, some analysts have even singled out this pot stock to be the biggest gainer of the year, with revenue expected to climb from just C$5.8 million to C$184.3 million CAD in the next 12 months. That’s an eyewatering increase of over 3,000%, which is impossible to ignore from an investor standpoint.

Auxly Cannabis Group has entered into a host of partnerships that are sure to be of major benefit in the 2.0 market, such as a joint venture with Sunens to build a 1.4 million square foot greenhouse, which is expected to be operational in Q2, and a deal with hemp farmers on Prince Edward Island, which will see the company receive all the hemp biomass grown on a 300-acre farm. The most impressive deal is a US$123 million investment from British tobacco giant Imperial Brands (OTCQX:IMBBF), which will give the company access to Imperial’s global licenses for its vaping technology.

Aleafia Health Inc (TSX:ALEF) (OTCQX:ALEAF)

Aleafia was one of the most impacted stocks by the disappointment of 2019; however, Aleafia’s shares were also driven down by a stock dilution in March that funded its C$173 million takeover of Emblem, which will eventually yield long-term growth for the pot stock. The 70% decline in Aleafia stock last year shouldn’t be looked at negatively, but rather as an opportunity to pick up a really high potential stock for a relatively low price.

In August, Aleafia posted a 159% jump in revenue from the previous quarter, leading CEO Geoffrey Bernic to promise “the best is yet to come.” Following the completion of its flagship facility in Paris, Ontario, hailed as “The Crown Jewel” of Aleafia Health’s operations, the company now has a production capacity of 115,000 kilograms. It’s also one of the lowest-cost producers on the market, and, most importantly, it’s profitable.

Namaste Technologies (TSXV:N) (OTCQB:NXTTF)

Namaste is one of the more unique firms in the Canadian cannabis space, providing an e-commerce platform that allows producers access to a much wider market. The company’s flagship site, CannMart, has everything that the anticipated three million new 2.0 consumers will be looking for, from a huge selection of vapes to its own in-house edibles, produced following its 49% acquisition of Choklat. CannMart looks well prepared for whatever the modern cannabis connoisseur may require.

After a rocky start to last year following the dismissal of former CEO Sean Dollinger, Namaste stock surged into 2020 with gains of nearly 90% from its mid-December price under the new leadership of Meni Morim. In its most recent results, posted back in October, Namaste Technologies saw consolidated revenue of C$3.8 million, despite the closure of several underperforming websites, highlighting its ability to generate revenue from alternative sources.

The Takeaway

While there are no guarantees that the second wave of legalization will have the catalytic effect on pot stocks that many investors and analysts are expecting, there is no doubt that 2020 will be a busy year indeed for the cannabis market. While the three stocks mentioned above may have suffered at times in 2019, they have also shown resilience, and the strength of their portfolios is a strong indication that there is a value to be had in small-cap pot stocks. What do you think?

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